cards Flashcards
Types of short term investments (MTC)
- Money Market: Overnight to year low risk investment
- Term Deposit: money invested for a set period of time at a fixed interest rate. Longer the term invested, higher the interest offered.
- Cash Management Trusts: Investors pool their money with other investors in a trust fund investment requiring a high minimum deposit. No set term, funds are easily accessed.
Types of LTI’s (STTUD)
- Shares: Part ownership of a company. Income comes from dividends (share of company profit) and capital gains (selling shares higher than purchase price). Volatile due to economic conditions and thus high risk.
- Trusts: Investors combine on ASX to buy shares. Returns can be higher than an individuals share investment. Funds easily accessible.
- Term Deposit: Term deposit but beyond one year long. Reliable interest income.
- Unsecured Notes (bonds): Work the same way as debentures but without security over assets. Higher returns than debentures but high risk as unsecured.
- Debentures: Secured loan from the public to a public company that has issued debenture through a prospectus, with a fixed interest rate and principal repayment at a later date. Low risk, low interest as is secured by company assets. As a secured creditor a debenture holder has payment priority over unsecured creditors and shareholders if company is liquidated.
Role of financial institutions
Accept deposits, lend money, give advice.
Management accounting
Providing information to internal management to support day to day management decisions and facilitate strategic direction.
Financial accounting
Preparing and presenting GPFS to external users in order to help them make sound economic decisions about the entity’s financial performance, position and cashflow.
Internal reporting
Type of accounting: Management accounting
Users: Internal users
Management only- managers, CEO, sole traders, partners
Reports: Special purpose internal reports eg financial budgets, sales forecast, market analysis
Flexible format, info is tailored to management needs
Financial and non-financial
Estimates, future orientated
Regular, timely, on demand as requested by management
Financial Statement Types: Financial position
Financial performance
Cash flows
Regulation: No regulation
Aren’t required to be audited as they don’t have to comply with accounting standards
External Reporting
Type of accounting: Financial accounting
Users: External users-
Existing and potential investors
Lenders and creditors
Customers, general employees
Regulatory authorities (ATO, ASX)
Reports: A written document called an annual information statement (FP, FP, Equity, cash flow, CSR report, auditors report) must be issued to shareholders.
Specific, consistent format as per accounting standards
Historical and verifiable data
ASX, ATO and accounting standards require reports at regular intervals.
Financial statement types: 4 general purpose financial statements
Regulation: Highly regulated
Must comply with accounting standards, taxation and corporations law
Must be audited, submitted to ASIC
Must meet ASX disclosure rules if public
Internal control
refers to the policies and procedures a business uses to safeguard assets, increase accountability, increase efficiency and ensure there is compliance with laws, accounting standards and regulations.
Internal audit
the review of the business operations and internal control procedures to ensure they are being adhered to and working efficiently and effectively.
Done by an internal employee.
Purposes of internal audit
Review of business policies and procedures: Management put in place policies for employees to follow to minimise risk and ensure efficiency and accuracy in procedures. Need to check external regulation and staff compliance. Failures can affect customer service and employee satisfaction.
Detect and correct errors/ deficiencies: To find errors in a business’s internal system and controls, an internal auditor or any member of staff who is not directly related to the areas being audited is necessary. Ensures done in an objective manner. Then report back to management any errors that need correcting.
Role of the accountant
Assist the owners, directors and managers with the information needed to make informed decisions and maximise profits.
Function of the accountant
Design a financial system, supervise and record financial transactions, collect information, produce reports, ensure compliance with laws, provide advice, review and suggest strategies for control of assets and financial systems.
financial principles of asset management
table in document
Insolvency definition
A business is solvent if they can pay all their debts as they become due and payable. A business that is not solvent is insolvent. Regulated by Corporations Act.
Options for insolvent companies
- voluntary administration
- liquidation
- recievership
Voluntary administration
When the company directors or a secured creditor appoints an external administrator who will take over company operations and find the best solution for creditors. The voluntary administrator will investigate company affairs and then recommend to creditors whether the company should enter into a deed of company arrangement, go into liquidation or be returned back to the directors control. A deed of company arrangement is a binding arrangement between a company and its creditors governing how the company’s affairs will be dealt with.
Liquidation
Liquidation can occur in two ways:
* Involuntary- Creditor applying to court.
* Voluntary- Shareholders vote to be wound up and appoint a liquidator or when creditors vote for liquidation following voluntary administration.
Liquidator takes control of the company so its affairs can be wound up and the company deregistered. Involves ceasing operations, selling assets, and distributing the proceeds among its creditors and shareholders according to the Corporations Act.
Order of creditor repayment is as follows:
1. Liquidator fees
2. Secured creditors eg debenture holders
3. Employee wages, superannuation, leave
4. Unsecured creditors
5. Shareholders
Receivership
A receiver is appointed by a secured creditor to take control of and sell secured assets. Receiver then pays out the money collected and reports to ASIC any possible offences they come across. Receivership ends when they have sold enough secured assets to be discharged by the secured creditor. Full control of the company and any remaining assets then goes back to the directors.
Corporate Social Responsibility
when a business implements processes for protection of environment and the good of society. Concerned not just about profit but the triple bottom line. For example recycling, reducing pollution, employee safety, donating to charity.
Costs of CSR
- Training staff
- Accommodating for special needs
- Cost of donations
- Purchasing more expensive green products
Benefits of CSR
- Competitive edge
- Employee loyalty
- Reputation
- Avoiding fines from gvt
- Possible cost saving like less water use
Capital investment
involves the purchase of NCA or a significant outlay of cash for a project that is expected to produce a cash inflow over a period of time over one year. Eg plant, equipment, large advertising campaigns.
Importance of capital investment
necessary for business growth by improving competitiveness and market share, increasing sales revenue, improving efficiency or operating capacity.
time value of money
refers to the fact that a dollar today is worth more than a dollar promised at some future time.
Inflation and compound interest
Nature of capital investment
- Large sum of money
- Long period of time
- Can not be easily reversed
- Substantial risk involved
Qualitative factors affecting capital investment decisions
Qualitative aspects: Descriptive and conceptual factors. Major qualitative factors are
Consumer preferences:
Respond accordingly to changing preferences with suitable capital investment. Investment that meets consumer preferences will lead to a higher return. However if they change during a projects life it may fail.
Competition:
A business must keep up with or get ahead of its competitors and this may require additional investment. If a competitor is launching a new product or better and more efficient technologies, decisions must be made about a response. Could lose market share.
Government regulations:
Capital investment may be required to comply with local, state and national laws and government regulations such as workplace standards or energy use. If regulations change management will have to invest capital to modify or replace existing infrastructure. Government may also offer subsidies and tax rebates. For example solar panel subsidies. Regulation changes must be taken into account when predicting future income and costs of investment.
Why is NPV better measurement than payback period
NPV is the better measurement as it takes into account time value of money, is more accurate and payback period doesn’t measure inflows past the payback period.
Cost accounting
involves the calculation, recording and evaluation of the costs of operating a business and producing goods.
Cost elements
Materials: Direct materials are the materials and parts directly used to manufacture a product or provide a service for example wood or steel. There are usually some indirect materials such as fuel or oil for machinery that relate to manufacturing in general but not directly.
Labour: Direct labour includes wages and other payroll costs of the employees that directly work to manufacture the product
Manufacturing (factory) overheads: All the costs indirectly related to manufacturing product or provision of service. For example rent, insurance. Indirect labour and material costs are included.
Cost behaviours
Fixed costs: Fixed costs do not change as business activity changes. Eg rent, depreciation
Variable costs: Those that change as level of business activity changes. Eg materials, direct labour
Mixed costs: A combination of fixed and variable. Eg telephone, electricity
Relationship to cost objects
Direct costs: Able to be traced to a manufactured product or service with a high degree of accuracy.
Indirect costs (overheads): Manufacturing costs that are not easily traced to a product or service. They are too insignificant to make it worth tracing to the finished product.
Product costs
Relate to the manufacture of a product or provision of a service. Thus all direct and indirect costs can be regarded as product costs. DM+DL+OH.
Period costs
Relate to an accounting period and not to the manufacture of products. They are the general operating costs of the business; finance, selling and general and admin.
Time orientation of costs
Past (sunk) costs: Costs that have already occurred, cant be reversed and hence have no impact on current decisions.
Future costs: Relevant costs as they are anticipated relevant to current decisions about a specific job.
Nature of master budget
- Amalgamation of all budgets
- Three main components: Operating budgets, Capital expenditure budget, Finance budgets
- Usually over a 12 month period.
